economic crisis Archives

Sri Lanka’s Disastrous 2022 Ends With A Sliver Of Optimism – Analysis

By Shyamika Jayasundara-Smits 23 February 2023

Last year, Sri Lanka faced its worst economic crisis to date, accompanied by political upheaval that left its population reeling as they struggled to make ends meet. In this article, Shyamika Jayasundara-Smits briefly outlines how things played out in 2022, showing that while the crisis has had a devastating impact on the country’s stability and prosperity, 2023 signals a time for action – and change.

Protesters in front of Sri Lanka's Presidential Secretariat. Photo Credit: Jayanidu Nilupul, Wikipedia Commons

Sri Lanka entered 2022 beset by economic crisis and political upheaval. The economic crisis culminated in Sri Lanka defaulting on payment for the first time. This led to the government being completely cut off from most sources of international funding, including from official multilateral and international commercial sources.

The government’s effort to blame its debt default on the lost revenue from tourism due to the COVID-19 pandemic and increased fuel prices resulting from the war in Ukraine did not carry much weight. One analyst stated that ‘this is the most man-made and voluntary economic crisis of which I know’.

Although many Sri Lankans did not understand what default meant, the effects of the crisis were keenly felt. The foreign currency crunch that followed progressively restricted imports of food, fuel, fertiliser, medicine and other essentials. By August 2022, the annual inflation rate had reached nearly 70 per cent and inflation of food prices had reached nearly 85 per cent — the sixth highest food inflation in the world. 750,000 people have already fallen into poverty. One UNICEF report shows that the food crisis has already taken its toll on young mothers and newborn babies.

The economic crisis has also hit the previously well-off middle class, who now struggle to eat their usual three meals a day. In rural areas, heartbreaking stories have emerged of children fainting at schools because they have not had breakfast. The emergency aid, including food and fertiliser, received from the World Bank, UN World Food Program, Australia and India, was not enough to feed everyone. Food shortages were exacerbated by declining local agricultural output.

Urban Sri Lanka became plagued by lengthy queues for fuel and food, with Sri Lankans waiting under the scorching sun and in torrential downpours. The crisis triggered mass protests by thousands of people from all walks of life. The main protest slogan, GotaGoGama (Gota go home), pointed toward former president Gotabaya Rajapaksa’s personal responsibility for governing Sri Lanka directly into a crisis and demanded his resignation.

The mass resignation of cabinet ministers jeopardised the former president’s attempt to cling on to power. As a last resort, he formed an all-party government, but this lacked support from other politicians who were aware of the political costs of taking part. Still, the former president showed no sign of stepping down and instead made his brother, prime minister Mahinda Rajapaksa, resign.

Before resigning in May, former prime minister Rajapaksa wasted no time mobilising his political supporters to attack peaceful protesters outside his home and at the main protest site, Galle Face Green. The anti-government protesters retaliated by targeting the Rajapaksa supporters’ properties and businesses. Some went even further by burning down the Rajapaksa family’s ancestral home and a museum honouring their parents. In response the state rolled out a variety of repressive measures, including Sunday curfews, social media blackouts, tear gas and water cannons. Presidential orders prohibited any public gathering and protest leaders were arrested.

The peak period of protests from March to July was followed by a massive anti-government march held at Galle Face Green in Colombo on 9 July. Gotabaya Rajapaksa finally fled the country and sent his resignation from Singapore via email on 14 July. As the former president fled his residence, people flocked to occupy it. Some even had a dip in the presidential swimming pool and took selfies while relaxing in the president’s bed.

In the absence of the president, the perpetually unpopular Ranil Wickremesinghe was appointed acting president, under Article 37 (1) of the Constitution. This was announced via an extraordinary gazette notification. Sometimes nicknamed ‘the Eel’ (Aanda) for his ability to glide through any political trap, Wickremesinghe’s dream of becoming president finally came true amid Sri Lanka’s worst nightmare.

The public legitimacy of Wickremesinghe’s rule was immediately clouded. While Wickremesinghe was appointed via a parliamentary process according to Articles 40(1) (a) and 40(1) (c) of the Constitution, there have been allegations that the exiting president paid bribes to lawmakers to secure parliamentary approval for Wickremesinghe’s appointment.

Wickremesinghe has managed to bring slight relief to the people as fuel, electricity, medicine and food items have slowly begun to be replenished. Wickremesinghe’s poor reputation among conservative voters, who widely considered him to be an elitist, Western-style cosmopolitan, was dropped — at least for now — when he secured a bailout package from the IMF by flaunting his liberal sensibilities. Wickremesinghe secured a commitment from Japan to lead the debt restructuring talks with Sri Lanka’s creditors, which are essential to secure a US$2.9 billion bailout package from the IMF. Even a subtle attempt to push Wickremesinghe under the bus any time soon will likely provoke a relapse toward another crisis.

2023 comes with some concerns over the conditions on government spending that an IMF bailout will entail, as well as hope for the opportunities it will provide to promote financial stability. One can expect fewer angry protests in 2023, as the cross-class spirit of Aragalaya (Revolution) has already begun to wane since Wickremesinghe started laying the ground work for rescuing the economy and disciplining society.

As global calls for ‘debt justice’ continue to gather momentum, there is an opportunity for Sri Lankans to take the lead in this emerging movement by rekindling their past ‘Aragalaya’ spirit and channelling it towards the global political arena.

This blog was first published in East Asia Forum.

Opinions expressed in Bliss posts reflect solely the views of the author of the post in question.

About the author:

Shyamika Jayasundara-Smits is an Assistant Professor in conflict and peace studies at the International Institute of Social Studies (ISS), Erasmus University Rotterdam.

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Do we ever learn? Collective memory as a blind spot in KNAW report on pandemics

By Peter van Bergeijk 13 October 2022

In its latest advisory report ‘Met de kennis van straks’ (‘With the knowledge of later’), the Royal Netherlands Academy of Arts and Sciences (KNAW) maps out what Dutch science and society need to do in order to be well prepared – and thus ready – for future pandemics. However, the report pays scant attention to macro(economic) issues, which doesn’t do justice to this societal-medical problem, writes Peter van Bergeijk.

alert-g661bb470e_1920 — Source: Syaibatul Hamdi, Pixabay.

Introduction

If we have learned anything from the COVID-19 pandemic in the Netherlands, it is that it is almost impossible for economists to make clear what our field is about. In fact, debates on economics all but stopped in my home country (Van Bergeijk 2022) [1]. Important insights from economics therefore did not sufficiently feed into other fields of science and policy.

From an economic point of view, the most important question is how to deal with the scarcity that arises during a pandemic. This requires insight into the effects and effectiveness of measures that have been considered and taken. I want to illustrate this with three topics that also provide concrete recommendations for improvement.

Be transparent about intended measures

A macroeconomic analysis is indispensable both because of the pandemic, which involves a simultaneous loss of a large part of the labour force, and because of measures including business closures and restrictions on gathering and movement. That up-to-date analyses of a flu pandemic were not ready in the Netherlands is an omission of the major policy institutions (CPB Netherlands Bureau of Economic Analysis and the Dutch Central Bank DNB), because the risk was known. On the eve of the COVID-19 outbreak, the ‘Geïntegreerde risicoanalyse Nationale Veiligheid’ (‘Integrated National Security Risk Analysis’ – ANV 2019) for example reported that a flu pandemic in the near future was both likely (5-50%) and a major threat for society with a significant impact on population and the economy at large.

However, the econometricians at CPB and DNB cannot be blamed for not foreseeing the lockdowns that were suddenly conjured out of the medical top hat in 2020. None of the national and international roadmaps anticipated lockdowns (van Bergeijk 2021a). As a result, not only policy analysts, but also scientists could not anticipate that lockdown instruments would be used. A first important conclusion is therefore that realistic roadmaps should be drawn up – and published – as early on as possible so that analyses of concretely considered (combinations of) instruments can be made in advance without the time pressure of an unfolding pandemic.

International comparative macro-research is needed

The KNAW report focuses mainly on improved accessibility of micro data (for example health status and socio-economic characteristics of large groups of individuals). This requires linking medical data files with data on socio-economic characteristics, either by means of long-term panels or through CBS Statistics Netherlands. At face value, this focus on micro and the Netherlands is understandable, but at the same time, one might argue that this focus is too narrow. After all, a pandemic is not a national problem, the micro-macro paradox can lead to bias, and a third relevant problem is whether the vulnerable are (or will be) adequately represented in the data. A very obvious problem with Internet panels, for example, is the under-representation of both the elderly and the disadvantaged and marginally poor, who are both more vulnerable and inherently more difficult to survey.

It is unfortunate that the KNAW focuses so much on the Dutch context. Every national context is unique and findings are therefore strongly determined by the conditions of time and place. ‘Met de kennis van straks’ uses these differences in context to justify an essentially national research strategy. Learning, however, actually requires making to make good use of differences in national contexts. Where regional policy in the Netherlands has proved to be impossible, researchers will have to look beyond national borders for differences in policies, institutions, and behaviour. National navel-gazing can be expected to lead to opportunities and threats being overlooked. It is important to start asking what the optimal design of our society would be from the perspective of pandemic resilience, lest the costs become too high. The second conclusion is therefore that building resilience in an evidence-based way requires extensive investments and structural change, which in turns requires research on the influence of differences between national contexts.

Final research findings do not exist

The economic view of the impact of the COVID-19 pandemic will continue to change significantly in coming years. After all, definitive research findings do not exist. Consider, for example, the estimate for the growth rate of world GDP in the year 2020 provided by the IMF in its World Economic Outlook [2]. Figure 1 shows that successive estimates for 2021 and 2022 became slightly less negative each time. 2020 will never be a good year, of course, but the adjustments made to the historical data are not insignificant. It amounts to 0.3 percentage points, or 10 percent of the first estimate. The adjustments themselves moreover come as no surprise at all (van Bergeijk 2021b).

Figure 1. Adjustments made in four instances by the IMF to the 2020 world production growth estimates provided in its World Economic Outlook.

Source: IMF website, accessed 11 October 2022.

The medical impact of the pandemic will also take time to become clear. We know the number of people that got COVID-19 and whether they recovered or died due to infection, but we know neither the impact on the long run of the lockdowns on the health status of the population, nor the long-term effects of COVID-19 itself. This uncertainty does not mean that no general policy recommendations can be made. Cost-benefit analyses, for example, have shown that while short lockdowns may make a rational and cost-effective contribution during pandemic outbreaks, the same cannot be said of long-term lockdown policies. This is basically because at its core, a human life can only be saved once, while longer lockdowns continuously increase economic costs. So, whether such an insight is valid for the next pandemic is not the question. However, what is ‘short’ cannot be answered in advance. The third conclusion is that economics can play an important role in helping design macro trade-off frameworks to best fill in and adjust the parameters in the event of a breakout as soon as new insights become available.

Conclusion

Science pretends to know a lot and to be able to contribute much. In this regard, it is probably too big for its boots. Vaccines have been important, but if we can actually put the COVID-19 crisis behind us, it will be mostly thanks to the gift Mother Nature gave us, namely a less severe, more infectious variant that makes COVID-19 better socially manageable. It is human nature to draw some lessons after a pandemic has died out and then to forget them. It is remarkable that all the issues that came up during the previous pandemic, the Mexican Flu pandemic, remained unresolved and came back again during the COVID-19 pandemic. Science could and should play a much more important role here, not so much in research, but in education. It is actually strange that the report does not pay attention to the core task of science. Providing the knowledge about the previous pandemic requires a better place in the curricula of all fields of science. If not, our students, who will probably experience four to five more pandemics in their lifetime, will be not be prepared for the next one.

Footnotes

[1] Dutch readers may want to consult van Bergeijk 2021b.

[2] Another example is the resurgence of research on the economic impact of the Spanish Flu.

References

ANV, 2019, Geïntegreerde risicoanalyse Nationale Veiligheid, ANV Netherlands Network of Safety and Security Analysts http://www.rivm.nl/sites/default/files/2019-10/Geintegreerde%20risicoanalyse%20Nationale%20Veiligheid%202019.pdfhttp://www.rivm.nl/sites/default/files/2019-10/Geintegreerde%20risicoanalyse%20Nationale%20Veiligheid%202019.pdf

Bergeijk, P.A.G. van, 2021a, Pandemic Economics, Edward Elgar 2021.

Bergeijk, P.A.G. van, 2021b, De volgende pandemie: een deltaplan voor overleving, Walburg, 2021.

Bergeijk, P.A.G. van, 2022, The Political Economy of the Next Pandemic, Review of Economic Analysis, 14 (1), 27-49

KNAW, 2022, Met de Kennis van straks: De wetenschap goed voorbereid op pandemieën.

This article was originally published on MeJudice and has been republished with permission of the author and editors.

Opinions expressed in Bliss posts reflect solely the views of the author of the post in question.

About the author:

Peter van Bergeijk is Professor of International Economic Relations and Macroeconomics at the Hague-based Institute of Social Studies at Erasmus University (ISS); one of the leading educational and research institutes in the field of development cooperation in Europe.

The ‘Economic Trauma’ that Zimbabwe faces by Susan Wyatt

By Admin 28 January 201918 May 2020

Zimbabwe, once considered the breadbasket of Africa, now lies in an economic flux. A new term, ‘Economic Trauma’, is proposed in this blog to draw attention to the societal impacts of historical, perpetuating, and contextual lines of trauma that influence the current situation.

We use language like economic hardship, economic turmoil, or economic crises, but seldom if at all do we talk about Economic Trauma. We think of trauma in terms of confronting direct, physical acts and their consequences. We recognise emotional and mental trauma as being damaging to a person’s psyche. However, bubbling away in Zimbabwe for some time is something I’ve recently experienced a first-hand assault in – Economic Trauma.

Quite literally one morning we woke up and the money in our bank account was valued at less than a quarter of its worth compared to the day before. Wait … what? How does that happen? Well, it’s complicated and depends on many variables. Most of these the average citizen doesn’t understand, not because they’re uneducated, but because it’s complex and layered between propaganda, historical and cultural narratives, speculation, ineffective processes, and fear. A lot of fear. So aren’t we just talking about bad economics here? The short answer is no. And here’s why.

Back in the 2000s the Zimbabwean economy went through an almost total collapse. There have been attempts at reform since, and in recent years improvements have been made. But in September and October this year (2018), there was episodic hyperinflation again due to various reasons including short-sighted government decisions, unwavering national debt, a fluctuating import/export market and, again, fear. Even though the economy was still better than it had been in recent years, Zimbabwean citizens had a severe reaction to the situation. There was panic buying, queues at fuel stations, and general despair across the nation. The people were experiencing Economic Trauma … but what is this, and how does it affect the economy?

Trauma is a circumstance that brings about a feeling that your safety has been violated and your trust broken. It causes anxiety, shame, intense reactions when triggered, ambivalence about hope for the future, and a sense of vulnerability and lack of control. These feelings or outcomes are currently exhibited in most citizens in Zimbabwe relating to the economy and decision made about it. The hysterical stocking up of basic commodities. The dread at the news of daily rates and inflation. The deep anticipation and apprehension of what the next day brings—will there be relief, or more relentless, disappointing news?

If this extent of hyperinflation hadn’t been seen for a few years, why are the people across the country experiencing such extreme reactions? Well, they’re reacting based on how they felt when facing the dire economics of 2008 or the banking crisis of 2015.

It is collective trauma, with endless parallels to other recognised traumas. We see a societal level symptomatology akin to Post-Traumatic Stress Disorder. A trauma that makes you personally invisible in the sea of economic trauma around you. It makes your strife and hardship inconsequential and, for the most part, ineffective. It de-identifies you in your own personal struggle because everyone is going through it, too. The ripple effects of economic trauma into one’s relationships, business interactions, community, and eventually one’s society are palpable. Yet we don’t see a human rights declaration that places value or weight on safeguarding individuals from the impacts of economic trauma (even though it’s manmade and therefore could and should be controllable.) Instead, we see headlines blaming the ‘economic migrant’ for searching for a better life. And, let’s be honest, wouldn’t you? It’s a much more passive and discrete way of stripping away a person’s dignity and self-determination. It allows for blame to be shifted and diluted away from the epicentre of where the trauma stems from and how it is perpetuated.

The Zimbabwe situation, like many other old colonies and young countries, is in its entirety a complex one. By no means can it be unpacked and understood in one blog post. But in an effort to understand what we see happening in front of us, and to unashamedly open a dialogue to facilitate healing within our societies, I offer up three simplified points as navigational milestones relating to this current economic trauma. Although written as separate points, they require interrelated projects:

Historical lines of Economic Trauma:

Colonisation, tribal conflicts, historical disempowerment, and intergenerational trauma are all significant contributors to our current situation. There is an incredible need for different avenues of reconciliation and healing, inclusive of pathways into economic opportunities through structural reforms to rectify the loss experienced by the previous generations.

Perpetuating lines of Economic Trauma:

Aid, investments, development funds, and international monetary systems are structured to advantage the western, corporate business model, or are used for political gain. They are in fact harming and taking advantage of our economy. What we need are mutually beneficial profit-sharing agreements, business and environmental accountability, and safeguarded local investment and development, inclusive of pan-African business, and social support structures to facilitate resilience.

Contextual lines of Economic Trauma:

Understanding the factors that have and continue to contribute to our turbulent situation is critical. But at some stage we need to take control of our own healing. We can no longer blame everyone else for all our current issues. Current-day corruption, lack of accountability or transparency, and unmet basic human needs are prevalent. We cannot heal as a nation until we are all healed.

It’ll never be a quick and easy recovery, but it’s what is needed in Zimbabwe. Without it, our economy continues to suffer, and in turn, so do we. We cannot do one type of healing or recovery without the other. We cannot expect people to participate in reconciliation programs, anti-corruption programs and development programs when they are struggling economically. And we cannot expect the country to make a sustained economic recovery with unhealed trauma’s lurking. They are the two sides of the same coin that is Economic Trauma.

About the author:

Susan Wyatt is Zimbabwean born and raised. She is a Mental Health Occupational Therapist, with a Master’s degree in Anthropology and Development, specialising in Conflict and Development. Her expertise is in transcultural mental health, reconciliation, peace building and development practices. Susan is the director of Tana Consulting, which currently operates out of Harare, Zimbabwe.

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